Southeast Asia's Strength Keeps Asia Growth on Track - ADB Report

MANILA, PHILIPPINES - The surging economies of Southeast Asia have been a bright spot in developing Asia's otherwise subdued 2012 growth performance, but the broader region should still pick up steam in 2013, says a new Asian Development Bank (ADB) report.

The latest Asian Development Outlook Supplement, released today, says developing Asia will post growth of 6.0% in 2012 and 6.6% in 2013, 0.1% percentage point lower than anticipated by ADB in October. Robust private consumption in Southeast Asia and a mild economic recovery in People's Republic of China (PRC) nearly balance out the weaknesses in India's economy. The report warns that ongoing sluggishness and uncertainty in Europe and the United States mean that risks to the forecasts remain firmly on the downside.

"Enduring debt problems and economic weakness in Europe and the looming fiscal cliff in the United States remain very real threats to developing Asia next year," said ADB Chief Economist Changyong Rhee. "At the same time there are highly encouraging signs from Southeast Asia and recent data from PRC confirms a bottoming out of the economy, with industrial output rebounding to a five-month high in October."

Malaysia and the Philippines outstripped expectations, with strong third quarter performance boosting ASEAN-5 growth forecasts from 5.6% to 5.9%. Third quarter expansion in the Philippines was a stellar 7.1%, more than double the rate from the same period a year earlier.

This performance and the recovery in PRC―supported by a turnaround in industrial production and retail sales and solid fixed investment―are helping to offset weakness in other East Asian economies, including Hong Kong, China; the Republic of Korea; and Taipei,China.

India's economy remains sluggish, with sliding industrial production and declining exports. Growth in Central Asia is also soft, pulled down by difficulties in its two largest economies―Azerbaijan and Kazakhstan. Pacific economies, led by resource-rich Papua New Guinea, Solomon Islands and Timor-Leste, are continuing to benefit from infrastructure rollouts which should support growth of 6% in 2012, but the expansion will moderate in 2013, the report says.

Inflation remains broadly benign across most of the region as a result of price declines in some food commodities, including soybean and palm oil. Inflationary pressures remain a concern in South Asia, however, with the subregion expected to post an annual inflation rate of 8.3% in 2012. An expected spike in meat prices, lower output of grains, and higher global demand will see inflation for developing Asia tick up to 4.2% in 2013, from a revised rate of 4.0% in 2012.